Archive for the ‘Regulatory Reform’ Category
A closer look at Frank’s changes to the U.S. consumer agency bill
September 29th, 2009 | 
Author: Rep. Barney Frank (D., Mass.), has introduced a revised U.S. consumer agency bill that is designed to address criticism that certain provisions of the bill were too vague, while others were too restrictive. The changes:
- Eliminated the requirement that financial service providers must offer a “plain-vanilla” or “standard” products like low interest, low fee credit cards and 30 year mortgages.
- Clarified who the Consumer Financial Protection Agency (CFPA) would regulate:
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Changed the sources of funding to include:
- Extend the registration, reporting and examination requirements to “covered persons” that are non-depository.
- Eliminated the requirement that consumer communications need to be “reasonable.”
- Restructure the agency to include a director who will be advised by a Consumer Financial Protection Oversight Board, which will include federal banking regulators and other agencies.
- Mandated the coordination of examinations between the CFPA and state and federal banking regulators and clear procedures for resolving disagreements between regulators.
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The kind of financial regulatory reform we really need- how do we best achieve it?
One of my interests that I study in my spare time is the history of Wall Street. Thinking about the events of the last few years in terms of the history of Wall Street disasters, I observed an oft repeated pattern- the SEC cites financial services firms for security law violations (usually in the aftermath of the collapse of the firms and/or financial markets), and it then assesses a fine that represents a tiny fraction of the profits earned from the illegal activity without requiring the firm to admit or deny guilt. Given this history, it is apparent that violating securities regulations is a relatively low risk and highly profitable proposition. In an industry that makes business decisions based on the risk/reward ratios, is it any wonder that regulatory violations occur on a fairly regular basis?
Court Ruling Underscores Need For National Consumer Protection
On June 29, the Supreme Court ruled 5 to 4 that states have the right to charge nationally chartered banks for violation of state consumer protection laws. The ruling in Cuomo vs. Clearing House Association denied states the right to unilaterally demand bank records the way a supervising regulator can, but they can pursue legal enforcement by suing national banks in court.
CFTC Considering Limiting Commodities Speculation
Proposed Regulatory Reform- Wall Street Needs to Respond Carefully
Not surprisingly, parts if the regulatory reform proposal released last week by the Obama Administration have proven to be rather controversial. The plan has attracting criticism from both lawmakers and members of the financial services industry, and praise from consumer advocacy groups. Can the plan prevent future financial crises without overburdening financial institutions with unnecessary and redundant oversight? I believe it has the potential to succeed, but the devil will be in the details that have yet to be determined. Over the coming weeks and months, there will be a great deal of debate, lobbying, and negotiations that will determine what the financial regulatory structure will be going forward.
Administration Proposal to Address Severely Damaged ABS Market
The Obama Administration revealed a proposal yesterday that is designed to safeguard the asset-backed securities (ABS) market that played such a significant role in causing our current economic crisis. The purposes of the reforms are to encourage responsible lending and lower the risks of ABSs by forcing the sellers to share in the risk of the securities and provide more information to investors.
Committee Report Provides Insight as to Likely Direction of Regulatory Reform
The Committee on Capital Markets Regulation (the Committee), an independent research organization comprised of twenty five leaders from the investor community, business, law, accounting and academia, issued a report on May 26 entitled “The Global Financial Crisis: A Plan for Regulatory Reform.” This report discusses the think tank’s recommendations for U.S. financial regulatory reform that are broadly similar to those proposed by a number of national and international financial and economic committees, regulators, lawmakers, and organizations. Given the consistency of the recommendations here with similar proposals within the industry and lawmakers, it seems likely that this provides broad-brush insight as to the direction of regulatory reform that the industry is likely to experience, though I would be shocked if all of the recommendations were adopted.
B of A Moves to Make Mortgage Origination More Consumer Friendly- Will Others Follow?
When it comes to mortgage lending practices, it appears that at least one bank has learned its lesson. After integrating Countrywide Home Loans and doing away with the name, Bank of America has taken steps to help potential home buyers with the mortgage process. According to The New York Times:
Expect Plenty of Fireworks as Washington Tackles the ‘Too-Big-To-Fail’ Issue
There will be plenty of activity for those of us in the financial services industry to keep an eye on as Washington grapples with the prospect of granting the government authority to take over, and possibly close, large financial institutions. The Senate Banking Committee will hold a public hearing Wednesday on that very subject, and The House Financial Services Committee is likely to do the same as early as next week.
Off-Balance-Sheet Accounting Change-So Near Yet So Far
Here is some very good news that contains an interesting twist. According to Bloomberg.com, FASB is close to announcing rule changes that will force banks to severely limit off-balance-sheet accounting. The twist is that it will not be implemented until next year:
Are the Bank’s Profits Really Good News?
Goldman Sachs, J.P. Morgan, and Bank of America all recently announced earnings that far exceeded analyst’s estimates- Halleluiah! But wait a minute, where did those profits come from? The answer is: trading. But didn’t trading losses help create this mess to begin with? This underscores a fundamental problem with our financial institutions- an inordinate amount of earning power is concentrated in a few small profit centers. These profit centers employ traders and money managers whose skills allow them to theoretically make huge profits and amass enormous bonuses, and that creates an incentive to take on excessive risks.
SEC Advances 5 Uptick Rule Proposals for Public Comment
The SEC has put forth 5 proposals for reinstating some sort of uptick rule on short selling stocks:
Speech by SEC Commissioner: Elisse B. Walter “Principles to Help Guide Financial Regulatory Reform”
Commissioner Elisse B. Walter
U.S. Securities and Exchange Commission
2009 Annual Washington Conference
Four Seasons Hotel
Washington, D.C.
Let me begin with the old Chinese proverb, "May you live in exciting times." This was actually not meant as a blessing, but as a curse. Before I rejoined the SEC last year, I never could have guessed that I would be serving as a Commissioner in the midst of the biggest financial crisis since the Great Depression. Rather than feeling cursed, however, I look at this crisis as presenting an opportunity to make needed changes in the structure of financial regulation.
